UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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ended
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FINSERV ACQUISITION CORP. II
Quarterly Report on Form 10-Q
Table of Contents
i
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FINSERV ACQUISITION CORP. II
CONDENSED BALANCE SHEETS
| June 30, 2023 | December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| Assets: | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Investments in mutual funds | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Cash held in Trust Account | ||||||||
| Cash and investments held in Trust Account | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities, Redeemable Common Stock and Stockholders’ Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Income tax payable | ||||||||
| Excise tax payable | ||||||||
| Total current liabilities | ||||||||
| Warrant liability | ||||||||
| Deferred liabilities | ||||||||
| Deferred underwriting fee | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 6) | ||||||||
| Stockholders’ Deficit: | ||||||||
| Preferred stock, $ | ||||||||
| Class A common stock, $ | ||||||||
| Class B common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total Liabilities, Redeemable Common Stock and Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
1
FINSERV ACQUISITION CORP. II
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Formation and operating costs | $ | $ | $ | $ | ||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income: | ||||||||||||||||
| Interest earned on marketable securities held in Trust Account | ||||||||||||||||
| Change in fair value of warrant liability | ( | ) | ||||||||||||||
| Income (loss) on investments in mutual funds | ( | ) | ( | ) | ||||||||||||
| Total other income, net | ||||||||||||||||
| Income before provision for income taxes | ||||||||||||||||
| Provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
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FINSERV ACQUISITION CORP. II
UNAUDITED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023
| Class A Common Stock | Class B Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance as of January 1, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Conversion of Class B common stock to Class A common stock | ( | ) | ( | ) | — | |||||||||||||||||||||||
| Accretion of Class A common stock subject to possible redemption | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Balance as of March 31, 2023 (Unaudited) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Excise tax on stock redemptions | ( | ) | ( | ) | ||||||||||||||||||||||||
| Accretion of Class A common stock subject to possible redemption | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||
| Balance as of June 30, 2023 (Unaudited) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022
| Class A Common Stock | Class B Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance as of January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Balance as of March 31, 2022 (Unaudited) | $ | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Accretion of Class A common stock subject to possible redemption | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Balance as of June 30, 2022 (Unaudited) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
3
FINSERV ACQUISITION CORP. II
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from Operating Activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
| Interest earned on marketable securities held in Trust Account | ( | ) | ( | ) | ||||
| Loss on investment in mutual funds | ||||||||
| Change in fair value of warrant liability | ( | ) | ||||||
| Change in deferred liabilities | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other noncurrent assets | ( | ) | ||||||
| Income tax payable | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Proceeds from sale of mutual funds | ||||||||
| Cash withdrawn to pay taxes | ||||||||
| Cash withdrawn in connection with redemption | ||||||||
| Net cash provided by investing activities | ||||||||
| Cash Flows from Financing Activities: | ||||||||
| Redemption of Class A common stock | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ||||||
| Net change in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Cash, end of period | $ | $ | ||||||
| Investment in mutual funds, end of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information from financing activities: | ||||||||
| Cash paid for income taxes | $ | |||||||
| Excise tax payable on stock redemption | ||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
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FINSERV ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2023
Note 1 — Organization and Business Operations
FinServ Acquisition Corp. II (the “Company”) is a blank check company incorporated as a Delaware corporation on November 23, 2020. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (“Business Combination”).
As of June 30, 2023, the Company had not commenced any operations. All activity through June 30, 2023 relates to the Company’s formation and the initial public offering (“IPO”) which is described below, and, since the closing of the IPO, identifying a target company for a Business Combination. The Company will not generate any operating revenues until after the completion of a Business Combination, at the earliest. The Company generates non-operating income in the form of interest income from the proceeds derived from the IPO.
The registration statement for the Company’s
IPO (the “IPO Registration Statement”) was declared effective by the U.S. Securities and Exchange Commission (the “SEC”)
on February 17, 2021. On February 22, 2021, the Company consummated the IPO of
Simultaneously with the closing of the IPO, the
Company consummated the sale of
Transaction costs of the IPO amounted to $
Following the closing of the IPO on February
22, 2021, $
The Company will provide its public stockholders
with the opportunity to redeem all or a portion of their Public Shares upon the completion of the initial Business Combination either
(i) in connection with a stockholder meeting called to approve the initial Business Combination or (ii) by means of a tender
offer. The decision as to whether the Company will seek stockholder approval of a proposed initial Business Combination or conduct a
tender offer will be made by the Company, solely in its discretion, and will be based on a variety of factors such as the timing of the
transaction and whether the terms of the transaction would require the Company to seek stockholder approval under the law or stock exchange
listing requirements. The stockholders will be entitled to redeem their shares for a pro rata share of the aggregate amount then on deposit
in the Trust Account (initially approximately $
On February 20, 2023, the Company held a special
meeting in lieu of the 2022 annual meeting of stockholders (the “Special Meeting”). At the Special Meeting, the Company’s
stockholders approved an amendment to the Company’s amended and restated certificate of incorporation (the “Extension Amendment”)
to extend the date by which the Company must consummate its initial Business Combination from February 22, 2023 to August 22, 2023, or
such earlier date as determined by the Company’s board of directors (the “Extension”). In connection with the Special
Meeting, stockholders holding
5
The Company has until August 22, 2023 to complete
an initial Business Combination (the “Combination Period”). However, if the Company doesn’t complete a Business Combination
within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably
possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the
aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously
released to the Company to pay its taxes (less up to $
The Sponsor, officers and directors have agreed
to (i) waive their redemption rights with respect to their Founder Shares (as defined below) and Public Shares in connection with
the completion of the initial Business Combination, (ii) waive their redemption rights with respect to their Founder Shares and
Public Shares in connection with a stockholder vote to approve an amendment to the Company’s amended and restated certificate of
incorporation (A) to modify the substance or timing of the Company’s obligation to allow redemption in connection with an
initial Business Combination or to redeem
The Company’s Sponsor has agreed that it
will be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company,
or a prospective target business with which the Company has entered into a written letter of intent, confidentiality or similar agreement
or Business Combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $
Liquidity and Going Concern
As of June 30, 2023, the Company had approximately
$
In connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard Board (“FASB”) Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” the Company has until August 22, 2023 to consummate a Business Combination. It is uncertain whether the Company will be able to consummate a Business Combination by this time. If a Business Combination is not consummated by this date, and if there are no further amendments to extend the date of the Business Combination beyond August 22, 2023, there will be a mandatory liquidation and subsequent dissolution of the Company. Management will continue to search for a Business Combination, however, there is no assurance the Company will find a suitable target. In addition, although the Company had positive working capital as of June 30, 2023, the Company may incur additional expenses in order to consummate a Business Combination, which may exceed the Company’s working capital. Management has determined that these factors raise substantial doubt about the Company’s ability to continue as a going concern.
The Company will hold a special meeting of stockholders
(the “Meeting”) on August 18, 2023. At the Meeting, the Company will submit to the approval of shareholders a proposal to
amend the Company’s amended and restated certificate of incorporation, as amended on February 21, 2023 (the “Charter”),
in the form set forth in Annex A to the accompanying Proxy Statement (the “Second Extension Amendment” and such proposal,
the “Extension Amendment Proposal”), to extend the date by which the Company must (i) consummate a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (a “Business
Combination,” and the Company’s initial Business Combination, the “Business Combination”), (ii) cease all operations
except for the purpose of winding up, and (iii) the redemption of
6
Risks and Uncertainties
Management is continuing to evaluate the impacts of the COVID-19 pandemic and the ongoing conflict in Ukraine and has concluded that while it is reasonably possible that these events could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of these unaudited condensed financial statements. The unaudited condensed financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Inflation Reduction Act of 2022
On August 16, 2022,
the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things,
a new U.S. federal
Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Business Combination, extension vote or otherwise, may be subject to the excise tax. Whether and to what extent the Company would be subject to the excise tax in connection with a Business Combination, extension vote or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Business Combination, Extension or otherwise, (ii) the structure of the Business Combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with the Business Combination (or otherwise issued not in connection with the Business Combination but issued within the same taxable year of the Business Combination) and (iv) the content of regulations and other guidance from the Treasury. In addition, because the excise tax would be payable by the Company and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a Business Combination and in the Company’s ability to complete a Business Combination.
As discussed above,
on February 20, 2023, holders of
Note 2 — Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for financial information and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP. In the opinion of management, the unaudited condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented.
The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s Form 10-K December 31, 2022 as filed with the SEC on March 31, 2023 which contains the audited financial statements and notes thereto. The interim results for the three and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any future interim periods.
Emerging Growth Company Status
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
7
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, the “Exchange Act”) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of unaudited condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed financial statements and the reported amounts of expenses during the reporting period. Accordingly, actual results could differ from those estimates.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the unaudited condensed financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. One of the more significant accounting estimates included in these unaudited condensed financial statements is the determination of the fair value of the warrant liability. Accordingly, the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers
all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. As of June 30, 2023
and December 31, 2022, the Company had $
Investments in Mutual Funds
At June 30, 2023 and
December 31, 2022, the Company had $
Investments Held in Trust Account
At June 30, 2023, the assets held in the Trust Account were held in demand deposits. At December 31, 2022, the assets held in the Trust Account were held in money market funds which invest in U.S. Treasury securities.
Concentration of Credit Risk
Financial instruments
that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at
times, may exceed the Federal Deposit Insurance Corporation coverage of $
Warrant Liabilities
The Company does not use derivative instruments to hedge exposure to cash flow, market, or foreign currency risks. The Company evaluated the Public Warrants and private placement warrants (the “Private Placement Warrants”, and collectively, “Warrants,” which are discussed in Note 3, Note 4, and Note 8) in accordance with Accounting Standards Codification (“ASC”) 815-40, “Derivatives and Hedging — Contrac ts in Entity’s Own Equity”, and concluded that a provision in the Warrant Agreement related to certain tender or exchange offers precludes the Warrants from being accounted for as components of equity. As the Warrants meet the definition of a derivative as contemplated in ASC 815, the Warrants are recorded as derivative liabilities on the condensed balance sheets and measured at fair value at inception (on the date of the IPO) and at each reporting date in accordance with ASC 820, “Fair Value Measurement”, with change in fair value of warrant liabilities recognized in the unaudited condensed statements of operations in the period of change.
8
Offering Costs Associated with the Initial Public Offering
The Company complies
with the requirements of the ASC 340-10-S99-1. Offering costs consisted of legal, accounting, underwriting fees and other costs
incurred through the IPO that were directly related to the IPO. Offering costs are allocated to the separable financial instruments issued
in the IPO based on a relative fair value basis, compared to total proceeds received. Offering costs associated with warrant liabilities
are expensed as incurred, presented as other expenses in the condensed statements of operations. Offering costs associated with the Class
A common stock were charged to temporary equity upon the completion of the IPO. Transaction costs of the IPO amounted to an aggregate
of $
Class A Common Stock Subject to Possible Redemption
All of the Public Shares sold as part of the Units in the IPO contain a redemption feature which allows for the redemption of such Public Shares in connection with the Company’s liquidation, if there is a stockholder vote or tender offer in connection with the Business Combination and in connection with certain amendments to the Company’s second amended and restated certificate of incorporation. In accordance with SEC and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions not solely within the control of the Company require common stock subject to redemption to be classified outside of permanent equity. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity instruments, are excluded from the provisions of ASC 480. Accordingly, at June 30, 2023 and December 31, 2022, all shares of Class A common stock subject to possible redemption are presented as temporary equity, outside of the stockholders’ deficit section of the Company’s condensed balance sheets. The Company recognizes any subsequent changes in redemption value immediately as they occur and adjusts the carrying value of redeemable Class A common stock to the redemption value at the end of each reporting period. Immediately upon the closing of the IPO, the Company recognized the accretion from initial book value to redemption amount value of redeemable Class A common stock. This method would view the end of the reporting period as if it were also the redemption date for the security. The change in the carrying value of redeemable Class A common stock also resulted in charges against additional paid-in capital and accumulated deficit.
| Gross Proceeds | $ | |||
| Less: | ||||
| Proceeds allocated to public warrants | ( | ) | ||
| Class A common stock issuance costs | ( | ) | ||
| Plus: | ||||
| Accretion of carrying value to redemption value | ||||
| Class A common stock subject to possible redemption December 31, 2021 | ||||
| Plus: | ||||
| Accretion of Class A common stock subject to possible redemption | ||||
| Class A common stock subject to possible redemption December 31, 2022 | ||||
| Less: | ||||
| Redemption of Class A common stock | ( | ) | ||
| Plus: | ||||
| Accretion of Class A common stock subject to possible redemption | ||||
| Class A common stock subject to possible redemption June 30, 2023 | $ |
Income Taxes
The Company accounts for income taxes under ASC 740, “Income Taxes.” ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the unaudited condensed financial statements and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carryforwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. As of June 30, 2023 and December 31, 2022, the Company’s deferred tax asset had a full valuation allowance recorded against it.
9
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of June 30, 2023 and December 31, 2022. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
The Company has identified the United States as its only “major” tax jurisdiction. The Company has been subject to income taxation by major taxing authorities since inception. These examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
Net Income per Share of Common Stock
The Company complies
with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share”. The Company has two classes of shares,
which are referred to as redeemable Class A common stock and non-redeemable Class and Class B common stock. Income and losses are shared
pro rata between the two classes of shares. Net income per share is computed by dividing net income by the weighted average number of
shares outstanding during the period, excluding shares subject to forfeiture. The Company has not considered the effect of the Warrants
sold in the IPO and the Private Placement to purchase an aggregate of
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||
| Redeemable Class A Common Stock | Non-Redeemable Class A and Class B Common Stock | Redeemable Class A Common Stock | Non-Redeemable Class A and Class B Common Stock | Redeemable Class A Common Stock | Non-Redeemable Class A and Class B Common Stock | Redeemable Class A Common Stock | Non-Redeemable Class A and Class B Common Stock | |||||||||||||||||||||||||
| Basic and diluted net income per share: | ||||||||||||||||||||||||||||||||
| Numerator: | ||||||||||||||||||||||||||||||||
| Allocation of net income | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Denominator: | ||||||||||||||||||||||||||||||||
| Weighted-average shares outstanding | ||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||
10
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, except for warrant liabilities, which qualify as financial instruments under FASB ASC 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the accompanying condensed balance sheets, primarily due to their short-term nature.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, and it also simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing the impact, if any, that ASU 2020-06 would have on its financial position, results of operations or cash flows.
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed financial statements.
Note 3 — Initial Public Offering
Public Units
On February 22, 2021,
the Company sold
Public Warrants
As of June 30, 2023
and December 31, 2022, the Company has
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The Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise of a Warrant and will have no obligation to settle such Warrant exercise unless a registration statement under the Securities Act with respect to the shares of Class A common stock underlying the Warrants is then effective and a current prospectus relating thereto is current. No Warrant will be exercisable and the Company will not be obligated to issue shares of Class A common stock upon exercise of a Warrant unless Class A common stock issuable upon such Warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the Warrants. In no event will the Company be required to net cash settle any Warrant. In the event that a registration statement is not effective for the exercised Warrants, the purchaser of a unit containing such Warrant will have paid the full purchase price for the unit solely for the share of Class A common stock underlying such unit.
Redemption of Warrants
When the Price per Share of Class A Common Stock Equals or Exceeds $
Once the Warrants become exercisable, the Company may redeem the outstanding Warrants:
| ● | in whole and not in part; |
| ● | at a price of $ |
| ● | upon not less than 30 days’ prior written notice of redemption given after the Warrants become exercisable (the “30-day redemption period”) to each Warrant holder; and |
| ● | if, and only if, the reported last sale price of the Class A common stock equals or exceeds $ |
Redemption of Warrants When the Price per Share of Class A Common Stock Equals or Exceeds $10.00
Once the Warrants become exercisable, the Company may redeem the outstanding Warrants:
| ● | in whole and not in part; |
| ● | at a price of $0.10 per Warrant, upon a minimum of 30 days’ prior written notice of redemption, provided that holders will be able to exercise their Warrants, but only on a cashless basis, prior to redemption based on the redemption date and the “fair market value” of Class A common stock except as otherwise described below; |
| ● | if, and only if, the reported last sale price of the Class A common stock equals or exceeds $10.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days (the “Reference Days”) within a 30-trading day period ending three business days before the Company sends the notice of redemption to the Warrant holders; and |
| ● | if the reported last sale price of the Class A common stock is less than $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for the Reference Days, the Private Placement Warrants are also concurrently called for redemption on the same terms as the outstanding Public Warrants, as described above. |
If the Company calls
the Warrants for redemption as described above, the management will have the option to require all holders that wish to exercise Warrants
to do so on a cashless basis. In determining whether to require all holders to exercise their Warrants on a cashless basis, the management
will consider, among other factors, the Company’s cash position, the number of Warrants that are outstanding and the dilutive effect
on its stockholders of issuing the maximum number of shares of Class A common stock issuable upon the exercise of the Warrants.
In such event, each holder would pay the exercise price by surrendering the Warrants for that number of shares of Class A common
stock equal to the lesser of (A) the quotient obtained by dividing (x) the product of the number of shares of Class A
common stock underlying the Warrants multiplied by the excess of the “fair market value” (defined below) over the exercise
price of the Warrant by (y) the fair market value and (B)
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Note 4 — Private Placement
Simultaneously with
the closing of the IPO, the Sponsor purchased an aggregate of
Each Placement Unit is identical to the Units offered in the IPO except as described below. There will be no redemption rights or liquidating distributions from the Trust Account with respect to the Founder Shares, placement shares or Private Placement Warrants, which will expire worthless if the Company does not consummate a Business Combination within the Combination Period.
As of June 30, 2023
and December 31, 2022, the Company has
The Company’s
initial stockholders have agreed to waive their redemption rights with respect to their placement shares (i) in connection with
the consummation of a Business Combination, (ii) in connection with a stockholder vote to amend the Company’s amended and
restated certificate of incorporation to modify the substance or timing of the Company’s obligation to allow redemption in connection
with the initial Business Combination or certain amendments to the Company’s charter prior thereto, to redeem
Note 5 — Related Party Transactions
Founder Shares
In December 2020,
the Company’s initial stockholders paid $
13
With
certain limited exceptions, the Founder
Shares are not transferable, assignable or salable (except to the Company’s officers and directors and other persons or entities
affiliated with the Sponsor, each of whom will be subject to the same transfer restrictions) until the earlier of (A) six months
after the completion of the Company’s initial Business Combination or (B) subsequent to the Company’s initial Business
Combination, (x) if the last sale price of the Company’s Class A common stock equals or exceeds $
On January 30, 2023,,
the holders of
The
Promissory Note — Related Party
On December 23, 2020,
the Company issued an unsecured promissory note to the Sponsor for an aggregate of up to $
Related Party Loans
In order to finance
transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor or certain of the Company’s
officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”).
If the Company completes a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account
released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the
event that a Business Combination does not close, the Company may use a portion of the working capital held outside the Trust Account
to repay the Working Capital Loans but no proceeds from the Trust Account would be used to repay the Working Capital Loans. Up to $
Administrative Services Agreement
The Company entered
into an agreement whereby, commencing on April 1, 2021 through the earlier of the consummation of the Initial Business Combination or
the Company’s liquidation, the Company agreed to pay, if requested by the Sponsor, a monthly fee of up to $
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Consulting Agreement
On August 12, 2022,
the Company entered into an agreement with a consulting company (the “Advisor”) to perform such services as requested by
the Company from time to time. The principal of the Advisor is the chief financial officer of the Company. The term of this Agreement
shall commence on August 12, 2022 and terminate upon the earlier of (a) termination of this engagement at will in accordance with the
terms of this Agreement; or (b) the consummation of a Business Combination. As full compensation for the services on behalf of the Company,
or any of its officers, directors, shareholders, or employees, the Company shall pay a quarterly fee of $
Note 6 — Commitments and Contingencies
Registration Rights
The holders of the Founder Shares, Placement Units (including the underlying securities), and Units that may be issued upon conversion of Working Capital Loans (including the underlying securities) and Class A common stock issuable upon conversion of the Founder Shares, are entitled to registration rights pursuant to a registration rights agreement to be signed prior to or on the effective date of the IPO, requiring the Company to register such securities for resale. The holders of the majority of these securities are entitled to make up to three demands, excluding short form demands, that the Company registers such securities. In addition, the holders have certain “piggyback” registration rights with respect to registration statements filed subsequent to the completion of the initial Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act.
Underwriting Agreement
The underwriter had
a 45-day option from the date of the IPO to purchase up to an aggregate of
The underwriters are
entitled to deferred underwriting fee of
Non-Redemption Agreements
In February 2023, the
Sponsor entered into non-redemption agreements (“Non-Redemption Agreements”) with unaffiliated parties in exchange for such
parties’ agreement not to redeem an aggregate of
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Note 7 — Stockholders’ Deficit
Preferred Stock —
The Company is authorized to issue a total of
Class A Common
Stock — The Company is authorized to issue a total of
Class B Common
Stock — The Company is authorized to issue a total of
The Company’s
Sponsor, directors and officers have agreed not to transfer, assign or sell their Founder Shares until the earlier to occur of (A) six
months after the completion of the Company’s initial Business Combination or (B) subsequent to the Company’s initial
Business Combination, (x) if the last sale price of the Company’s Class A common stock equals or exceeds $
The shares of Class B
common stock will automatically convert into shares of Class A common stock at the time of the initial Business Combination on a
one-for-one basis (subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like), and
subject to further adjustment as provided herein. In the case that additional shares of Class A common stock, or equity-linked securities,
are issued or deemed issued in excess of the amounts offered in IPO and related to the closing of the initial Business Combination, the
ratio at which shares of Class B common stock shall convert into shares of Class A common stock will be adjusted (unless the
holders of a majority of the outstanding shares of Class B common stock agree to waive such adjustment with respect to any such
issuance or deemed issuance) so that the number of shares of Class A common stock issuable upon conversion of all shares of Class B
common stock will equal, in the aggregate, on an as-converted basis,
Holders of record of the Class A common stock and holders of record of the Class B common stock will vote together as a single class on all matters submitted to a vote of the Company’s stockholders, with each share of common stock entitling the holder to one vote except as required by law.
Note 8 — Fair Value Measurements
The Company follows the guidance in ASC 820, “Fair Value Measurement,” for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
| Level 1 — | Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not being applied. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment. |
| Level 2 — | Valuations based on (i) quoted prices in active markets for similar assets and liabilities, (ii) quoted prices in markets that are not active for identical or similar assets, (iii) inputs other than quoted prices for the assets or liabilities, or (iv) inputs that are derived principally from or corroborated by market through correlation or other means. |
| Level 3 — | Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
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| June 30, | Quoted Prices In Active Markets | Significant Other Observable Inputs | Significant Other Unobservable Inputs | |||||||||||||
| 2023 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Assets: | ||||||||||||||||
| U.S. Money Market held in Trust Account | $ | $ | $ | $ | ||||||||||||
| Investments in mutual funds | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Liabilities: | ||||||||||||||||
| Public Warrants Liability | $ | $ | $ | $ | ||||||||||||
| Private Placement Warrants Liability | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| December 31, | Quoted Prices In Active Markets | Significant Other Observable Inputs | Significant Other Unobservable Inputs | |||||||||||||
| 2022 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Assets: | ||||||||||||||||
| U.S. Money Market held in Trust Account | $ | $ | $ | $ | ||||||||||||
| Investments in mutual funds | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Liabilities: | ||||||||||||||||
| Public Warrants Liability | $ | $ | $ | $ | ||||||||||||
| Private Placement Warrants Liability | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Level 1 assets include investments in mutual funds and money market funds invested in government securities. The Company uses inputs such as actual trade data, benchmark yields, quoted market prices from dealers or brokers, and other similar sources to determine the fair value of its investments.
The Warrants are accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on the unaudited condensed balance sheets. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of warrant liability in the unaudited condensed statements of operations.
The Company established the initial fair value of the Public and Private Warrants on February 22, 2021, the date of the Company’s IPO, using a Monte Carlo simulation model and modified Black-Sholes model. The Warrants were classified as Level 3 at the initial measurement date due to the use of unobservable inputs. As of December 31, 2021, the Company used the quoted market price as the fair value of the Public Warrants and the Public Warrants were reclassified from Level 3 to Level 1. Due to certain “make whole” provisions in the Warrant agreement, the Company also used the quoted market price of the Public Warrants as the fair value of the Private Warrants as of December 31, 2021 and reclassified the Private Warrants from Level 3 to Level 2, due to the use of the quoted price of a similar liability. For the three and six months ended June 30, 2023, the Company transferred the Public Warrants from Level 1 to Level 2 due to low trading volume.
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Note 9 — Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the condensed balance sheet date up to the date that the unaudited condensed financial statements were issued. Based upon this review, except as noted below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the unaudited condensed financial statements.
The Company will hold the special meeting of stockholders (“the Meeting ”) on August 18, 2023. At the Meeting, the shareholders will vote for the following proposals:
| 1. | a proposal to amend the Company’s amended and restated certificate of incorporation, as amended on February 21, 2023 (the “Charter”), in the form set forth in Annex A to the accompanying Proxy Statement (the “Second Extension Amendment” and such proposal, the “Extension Amendment Proposal”), to extend the date by which the Company must (i) consummate a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (a “Business Combination,” and the Company’s initial Business Combination, the “Business Combination”), (ii) cease all operations except for the purpose of winding up, and (iii) the redemption of | |
| 2. | a proposal to amend the Charter in the form set forth in Annex B to the accompanying Proxy Statement to eliminate from the Charter the limitation that the Company will only redeem the Public Shares so long as (after such redemption), the Company’s net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Securities Exchange Act of 1934, as amended), or of any entity that succeeds to the Company as a public company, will be at least $ | |
| 3. | a proposal to approve the adjournment of the Meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies in the event that there are insufficient votes for, or otherwise in connection with, the approval of the other Proposals (the “Adjournment Proposal”). The Adjournment Proposal may be presented at the Meeting if there are not sufficient votes to approve any of the other Proposals. |
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References to the “Company,” “our,” “us” or “we” refer to FinServ Acquisition Corp. II. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto contained elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this report including, without limitation, statements under this “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward- looking statements. When used in this report, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or our management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of our management, as well as assumptions made by, and information currently available to, the Company’s management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the SEC. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto included in this report under “Item 1 Financial Statements”. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Overview
We are a blank check company incorporated in Delaware on November 23, 2020 for the purpose of effecting a Business Combination with one or more businesses. Our Sponsor is FinServ Holdings II LLC, a Delaware limited liability company.
Our IPO Registration Statement was declared effective on February 17, 2021. On February 22, 2021, we consummated the IPO of 30,000,000 Units, at $10.00 per Unit, generating gross proceeds of $300.0 million, and incurring offering costs of approximately $16.8 million, inclusive of $10.5 million in deferred underwriting commissions.
Simultaneously with the closing of the IPO, we consummated the Private Placement of 800,000 Units at a price of $10.00 per Unit to the Sponsor, generating gross proceeds of approximately $8.0 million.
Upon the closing of the IPO and the Private Placement on February 22, 2021, $300.0 million ($10.00 per Unit) of the net proceeds of the sale of the Units in the IPO and the Private Placement were placed in a Trust Account located in the United States with Continental Stock Transfer & Trust Company acting as trustee, and invested only in U.S. “government securities,” within the meaning of Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act, which invest only in direct U.S. government treasury obligations, as determined by us, until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the Trust Account as described below.
If we have not completed an initial Business Combination during the Combination Period, we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to us to pay its taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining stockholders and our board of directors, liquidate and dissolve, subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.
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Results of Operations
For the three months ended June 30, 2023, we had a net income of $317,142, which included income on investments in mutual funds of $8,104, a gain from the change in fair value of warrant liabilities of $135,520, and interest earned on cash and marketable securities held in the Trust Account of $460,496, offset by a loss from operations of $197,560 and provision for income taxes of $89,418.
For the six months ended June 30, 2023, we had a net income of $1,366,467, which included income on investments in mutual funds of $14,339 and interest earned on cash and marketable securities held in the Trust Account of $2,584,610, offset by a loss from the change in fair value of warrant liabilities of $112,420, a loss from operations of $592,530 and provision for income taxes of $527,532.
For the three months ended June 30, 2022, we had a net income of $1,370,643, which included a loss from operations of $203,663, loss on investment in mutual funds of $15,035, and provision for income taxes of $23,735, offset by a gain from the change in fair value of warrant liabilities of $1,232,000 and interest earned on cash and marketable securities held in the Trust Account of $381,076.
For the six months ended June 30, 2022, we had a net income of $3,493,249, which included a loss from operations of $400,610, loss on investment in mutual funds of $32,228, and provision for income taxes of $23,735, offset by a gain from the change in fair value of warrant liabilities of $3,542,000 and interest earned on cash and marketable securities held in the Trust Account of $407,822.
Our business activities from inception to June 30, 2023 consisted primarily of our formation and completing our IPO, and since the offering, our activity has been limited to identifying and evaluating prospective acquisition targets for a Business Combination.
Liquidity and Capital Resources
As of June 30, 2023, we had approximately $0.1 million in our operating bank account and money market funds and working capital deficit of $2,359,542 (excluding Delaware franchise and income taxes payable).
In connection with the Company’s assessment of going concern considerations in accordance with FASB ASU 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” we have until August 22, 2023 to consummate a Business Combination. It is uncertain whether we will be able to consummate a Business Combination by this time. If a Business Combination is not consummated by this date, and if there are no further amendments to extend the date of the Business Combination beyond August 22, 2023, there will be a mandatory liquidation and subsequent dissolution of the Company. We will continue to search for a Business Combination, however, there is no assurance we will find a suitable target. In addition, although we had positive working capital as of June 30, 2023, we may incur additional expenses in order to consummate a Business Combination, which may exceed the our working capital. We have determined that these factors raise substantial doubt about our ability to continue as a going concern.
20
Administrative Services Agreement
We entered into an agreement whereby, commencing on April 1, 2021 through the earlier of the consummation of an initial Business Combination or our liquidation, we agreed to pay the Sponsor a monthly fee of up to $10,000 for office space, utilities and administrative support. Upon completion of an initial Business Combination or our liquidation, we will cease paying these monthly fees. For six months ended June 30, 2023, we did not incur fees for these services.
Consulting Agreement
On August 12, 2022, we entered into an agreement with the Advisor to perform such services as requested by us from time to time. The principal of the Advisor is our Chief Financial Officer. The term of the agreement commenced on August 12, 2022 and will terminate upon the earlier of (a) termination of this engagement at will in accordance with the terms of the agreement; or (b) the consummation of a Business Combination. As full compensation for the services on behalf of the Company, or any of its officers, directors, shareholders, or employees, we pay a quarterly fee of $30,000 to the Advisor. During the six months ended June 30, 2023, the Company paid and recorded $60,000 such fees.
Contractual Obligations
We do not have any long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations or long-term liabilities.
Critical Accounting Policies
This management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these unaudited condensed financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our unaudited condensed financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to fair value of financial instruments and accrued expenses. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Except as set forth below, there have been no significant changes in our critical accounting policies as discussed in the Annual Report on Form 10-K filed by us with the SEC on March 31, 2023.
Class A Common Stock Subject to Possible Redemption
All of the Public Shares sold as part of the Units in the IPO contain a redemption feature which allows for the redemption of such Public Shares in connection with our liquidation, if there is a stockholder vote or tender offer in connection with the Business Combination and in connection with certain amendments to our second amended and restated certificate of incorporation. In accordance with SEC and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions not solely within our control require common stock subject to redemption to be classified outside of permanent equity. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity instruments, are excluded from the provisions of ASC 480. Accordingly, at June 30, 2023 and December 31, 2022, all shares of Class A common stock subject to possible redemption are presented as temporary equity, outside of the stockholders’ deficit section of our condensed balance sheets.
We recognize any subsequent changes in redemption value immediately as they occur and adjust the carrying value of redeemable Class A common stock to the redemption value at the end of each reporting period. Immediately upon the closing of the IPO, we recognized the accretion from initial book value to redemption amount value of redeemable Class A common stock. This method would view the end of the reporting period as if it were also the redemption date for the security. The change in the carrying value of redeemable Class A common stock also resulted in charges against Additional paid-in capital and Accumulated deficit.
Warrants Liability
We evaluated the Warrants in accordance with ASC 815-40, “Derivatives and Hedging — Contracts in Entity’s Own Equity”, and concluded that a provision in the Warrant Agreement related to certain tender or exchange offers as well as provisions that provided for potential changes to the settlement amounts dependent upon the characteristics of the holder of the Warrant, precludes the Warrants from being accounted for as components of equity. As the Warrants meet the definition of a derivative as contemplated in ASC 815 and are not eligible for an exception from derivative accounting, the Warrants are recorded as derivative liabilities on the condensed Balance Sheets and measured at fair value at inception (on the date of the IPO) and at each reporting date in accordance with ASC 820, “Fair Value Measurement”, with changes in fair value recognized in the condensed Statements of Operations in the period of change.
21
Net Income Per Share of Common Stock
We comply with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” We have two classes of shares, which are referred to as Class A common stock and Class B common stock. Income and losses are shared pro rata between the two classes of shares. Net income per share is computed by dividing net income by the weighted average number of shares outstanding during the period, excluding shares subject to forfeiture. We have not considered the effect of the Warrants sold in the IPO and the Private Placement to purchase an aggregate of 7,700,000 shares of our Class A common stock in the calculation of diluted income per share, since the exercise of the Warrants are contingent upon the occurrence of future events. As a result, diluted net income per share is the same as basic net income per share for the periods presented.
Recent Accounting Pronouncements
Our management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying unaudited condensed financial statements.
JOBS Act
On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an “emerging growth company” under the JOBS Act and are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We elected to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
As an “emerging growth company,” we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our IPO or until we are no longer an “emerging growth company,” whichever is earlier.
Off-Balance Sheet Arrangements
As of June 30, 2023 and December 31, 2022, we did not have any off-balance sheet arrangements.
Factors That May Adversely Affect Our Results of Operations
Our results of operations and our ability to complete an initial Business Combination may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond our control. Our business could be impacted by, among other things, downturns in the financial markets or in economic conditions, increases in oil prices, inflation, increases in interest rates, supply chain disruptions, declines in consumer confidence and spending, the ongoing effects of the COVID-19 pandemic, including resurgences and the emergence of new variants, and geopolitical instability, such as the military conflict in Ukraine. We cannot at this time fully predict the likelihood of one or more of the above events, their duration or magnitude or the extent to which they may negatively impact our business and our ability to complete an initial Business Combination.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended June 30, 2023, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial and accounting officer have concluded that during the period covered by this report, our disclosure controls and procedures were effective. Accordingly, management believes that the financial statements included in this report present fairly in all material respects our financial position, results of operations and cash flows for the period presented.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fiscal quarter of 2023 covered by this report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
To the knowledge of our management team, there is no litigation currently pending or contemplated against us, any of our officers or directors in their capacity as such or against any of our property.
ITEM 1A. RISK FACTORS.
As a smaller reporting company under Rule 12b-2 of the Exchange Act, we are not required to include risk factors in this report. However, as of the date of this report, other than as set forth below, there have been no material changes with respect to those risk factors previously disclosed in (i) our final prospectus for our IPO, as filed with the SEC on February 17, 2021, (ii) our Annual Reports on Form 10-K for the fiscal years ended December 31, 2021 and December 31, 2022, as filed with the SEC on March 29, 2022 and March 31, 2023, respectively, (iii) our Quarterly Report on Form 10-Q for the period ended March 31, 2022, as filed with the SEC on May 13, 2022, (iv) our Quarterly Report on Form 10-Q for the period ended June 30, 2022, as filed with the SEC on August 12, 2022, (v) our Quarterly Report on Form 10-Q for the period ended September 30, 2022, as filed with the SEC on November 14, 2022, and (vi) our definitive proxy statement, as filed with the SEC on January 30, 2023; and (vii) our Quarterly Report on Form 10-Q for the period ended March 31, 2023, as filed with the SEC on May 15, 2023. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risks could arise that may also affect our business or ability to consummate an initial Business Combination. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Unregistered Sales of Equity Securities
None.
Use of Proceeds
For a description of the use of proceeds generated in our IPO and Private Placement, see Part II, Item 2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, as filed with the SEC on May 24, 2021. There has been no material change in the planned use of proceeds from the Company’s IPO and Private Placement as described in the IPO Registration Statement.
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Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
The following exhibits are filed as part of, or incorporated by reference into, this report on Form 10-Q.
| * | Filed herewith. |
| ** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Dated: August 14, 2023 | FINSERV ACQUISITION CORP. II | |
| By: | /s/ Lee Einbinder | |
| Lee Einbinder | ||
| Chief Executive Officer and Director | ||
| (Principal Executive Officer) | ||
| By: | /s/ Steven Handwerker | |
| Steven Handwerker | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
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